India has seen some aggressive loan distribution efforts in the past - from loan melas to loan waivers; from banks selling car loans, housing loans and education loans aggressively to micro-finance institutions pushing loans to the “un bankable”; NBFCs pushing consumption loans and multinational banks heralding credit cards.
In spite of these aggressive efforts at interpreting and engineering financial inclusion at various levels, the Indian household is remarkably debt-free. As of March 2012, less than 12 per cent of these had any debt outstanding.
But, Consumer Pyramids provides many more insights into the borrowing behaviour of households.
While households have been cautious in increasing their exposure to loans, the relatively less educated from lower middle income groups in rural India have a much larger exposure. Findings from a study of the distribution of borrower households by five different characteristics is presented below:
Rural households are greater borrowers compared to urban households. As of March 2012, 13.4 per cent of rural households had borrowings outstanding. This ratio was much lower at 7.4 per cent for urban households.
Southern states show a significantly higher proportion of borrower households compared to other states. Over 25 per cent of the households in Kerala, Tamil Nadu, Karnataka and Andhra Pradesh are borrower households. In comparison, in the rest of the states this proportion is about 5 per cent. In rural Karnataka and Kerala the proportion of households that have outstanding borrowings is over 33 per cent.
Micro-finance institutions, self-help groups and chit funds have been a lot more active in the southern states compared to the northern states. These institutions have also been a lot more active in the rural parts of the southern states. This possibly, explains the higher proportion of borrower households in these regions.
Rich households have a lower propensity to borrow. Only 7 per cent of them do so. The ratio goes up to 9 per cent for the higher middle income group of households. For middle income households this rises substantially to 12 per cent and then it peaks at 13 per cent for the lower middle income group of households. The ratio falls sharply thereafter to 8 per cent in the case of the poor.
The poor have an income of just Rs.3,000 or less per month. Apparently, they are not found to be worthy of lending to. The lower middle income group of households have a monthly income between Rs.3,000 and Rs.8,000 per month. Within this, the sub-group with monthly income between Rs.5,000 and Rs.8,000 (the LMI-I group) has the highest proportion of of borrower households (13.3 per cent).
The salaried white collar worker has the lowest proportion of borrower households. Less than 6 per cent of the urban salaried white collar worker households reported an outstanding borrowing as of March 2012. Only households of aged/retired persons had a lower ratio at about 4 per cent. In contrast households of industrial workers have a higher probability of borrowing.
The incidence of borrower households is high amongst self-employed professionals and small traders and wage labourers. Both are close to 14 per cent. But, it is very likely that the borrowings here are partly (possibly even largely) the result of family businesses.
Educated households have a lower propensity to borrow. Only 5 per cent of the households where every member was at least a graduate had an outstanding loan. But, 15 per cent of households where all members were illiterate had outstanding loans. The proportion goes up to 16 per cent if these households of all illiterates were in rural India.
The relationship between level of education and propensity to borrow seems to be quite linear. Household where all members were literate had a borrower-household proportion of 10.5 per cent. This rises to 12.6 per cent where only some of the households were literate and it rises further to over 15 per cent where all households were no literates in the household. Similarly, households with at least one graduate had a borrower-household proportion of 7.6 per cent and those with no graduates but at least one matriculate goes up to 11.8 per cent.